Is China A Trading Nation?
A trading nation is a nation in which international trade accounts for a high percentage of its gross domestic product. A trading nation’s gross domestic product, or GDP, is usually greater than the gross domestic product of any other country. The products that are produced in a trading nation are allowed to circulate freely across international borders without barriers. However, trading nations are prone to political instability and are sometimes susceptible to political pressure and intervention from neighboring nations. They are prone to high inflation and foreign currency exchange rates, and they face trade deficits.
China, a leading trading nation, accounts for most of the goods traded on global markets. Imports and exports in China have risen dramatically over the past twenty years, driven by a combination of governmental policy and increased investment in infrastructure, technology and manufacturing. In recent years China has turned inward, reducing domestic consumption and relying more on exports for growth. As a result, the pressures on Chinese exporters have grown significantly, resulting in some trade disputes.
Many Chinese exporters have moved their factories offshore, or outsource production to lower-cost locations. These activities have led to the leakage of highly classified information in the hope of reducing import tariffs or other penalties. Lax border controls and lax licensing standards have also resulted in a growth in smuggling of goods across the borders. Chinese companies are now building hundreds of miles of railroad tracks, and developing internal transportation systems to support the increased exports.
In addition to exporting jobs and lowering unemployment in China, the rapid growth of the Chinese economy has raised the costs of goods and services, making China an increasingly important trading nation in international trade. To be categorized as a trading nation, a nation must reach a certain level of per capita Gross Domestic Product. For many years the United States has enjoyed a higher level of GDP than China, and enjoys the largest free trade agreement in the world. While China has achieved rapid economic growth over the past two decades, U.S. companies continue to compete for markets in India, Malaysia, Vietnam, and Japan. Because of these trends, China’s future ability to join the global trading system is a question.
The United States does not believe that China will become a true trading nation. There are multiple reasons for this, including the massive amounts of capital that will need to be transferred to expand the size of China beyond what it already knows. There are also worries that the United States will suffer a trade deficit if China becomes a major exporter of goods. It is believed that the United States will benefit from continued low-priced crude oil, which has reduced the cost of exports for American businesses. China’s rapid growth will also reduce the number of goods and services that the United States purchases from other nations.
On the flip side, the recent strengthening of the dollar, a sharp reduction in world trade deficit, and lower interest rates by the Federal Reserve have made the dollar weak against many other currencies. In addition to the aforementioned benefits of the United States exporting jobs, a strong dollar makes U.S. goods more expensive on foreign markets. This has helped to keep the trade deficit down. As such, the United States is enjoying a strong economy as a result of these factors while China continues to develop as a world leader in exports and as a major player in global trade.